It is unlikely a successor for Federal Deposit Insurance Corp. Chairman Martin Gruenberg will be in place before the November elections, giving way for bank regulators to push through key agenda items ahead of a potential change in administration.
Following a report finding workplace misconduct at the FDIC, Gruenberg has faced pressure to resign from his post. Gruenberg recently relented to the pressure, saying he is prepared to resign in the event a successor is named and confirmed — likely in an attempt to ensure key proposals like the Basel III endgame capital proposal and other items on the FDIC's regulatory agenda such as its recent M&A proposal can resume without a hitch. However, securing confirmation of a successor in a timely manner would be a big lift, making it more likely Gruenberg will remain at the helm of the FDIC.
Not-so-simple Senate process
Shortly after Gruenberg released his statement on May 20, White House Deputy Press Secretary Sam Michel said in a statement that President Joe Biden "will soon put forward a new nominee."
However, any nominee is likely to hit a snag in the Senate given partisan dynamics and Democrats' slim majority. Certain senators, like Sen. Kyrsten Sinema (I-Ariz.) and Sen. Joe Manchin III (D-W.Va.), could add challenges to the process of confirming a replacement chair. Moreover, the Senate will have little time to convene over the next few months because of holidays, recesses and election campaigning, further complicating confirmation.
"The chances of that happening before the election are almost zero given the Senate's glacial process in an election year and the unreliability of Senators Sinema and Manchin," Todd Baker, managing principal at Broadmoor Consulting and senior fellow at Columbia Business School's Richman Center, wrote in an email. "So the President will nominate a successor and then things will stall given the partisanship that now surrounds bank regulation."
The bank regulatory agencies have a packed agenda and are likely trying to push forward key measures such as the Basel III endgame rule ahead of the election in November. Gruenberg is likely resistant to stepping down without a successor, as in that case Vice Chairman Travis Hill would become chairman and put a wrinkle in the Democrats' agenda.
"The likeliest scenario in our view is that the process to name and confirm a new nominee is strategically slow walked to ensure that Gruenberg is in the seat and able to cast a vote advancing Democratic bank policies," Isaac Boltansky, managing director and director of policy research at BTIG LLC, wrote in a note May 20.
Gruenberg may have also decided to stay in his spot with a belief it would be detrimental to shake up the head of a key regulatory agency in the current environment.
"One good reason for Gruenberg not to resign immediately is that having a confirmed chair with long experience is important in case of additional bank failures before a new confirmed chair is in place," Baker wrote.
Potential replacements
Finding a nominee who will agree to go through the potentially tumultuous political process presents another hurdle.
"Given the current situation, we think most potential Democratic nominees would be reluctant to accept the nomination and put themselves through the ordeal of a Senate confirmation process only to be undercut in 2025 if [former President Donald] Trump wins," Brian Gardner, chief Washington policy strategist at Stifel Financial, wrote in a note May 21.
In this scenario, the new chair would become a minority member on the FDIC board, similar to the situation former Chair Jelena McWilliams found herself in after Biden's election.
As potential replacements, analysts mentioned Adrienne Harris, who leads the New York State Department of Financial Services; Tanya Otsuka of the National Credit Union Administration Board; Nellie Liang, undersecretary for domestic finance at the US Treasury Department; Grovetta Gardineer, senior deputy comptroller for bank supervision policy at the Office of the Comptroller of the Currency; Ellen Reilly Patterson, general counsel of Wells Fargo & Co.; Hope Mehlman, general counsel at Discover Financial Services; and Graham Steele, assistant secretary for financial institutions at the US Treasury Department.
However, Boltansky, who was one of the analysts who mentioned Harris, anticipated that she likely would not accept the position.
Potential for Gruenberg to resign earlier
There is a chance Gruenberg will feel more pressure and end up resigning without a successor after all.
"Is this something where the pressure stays on, and he steps down? Or is this something that, now that they have said he is not staying around, that we move on from?" Ed Mills, a managing director and Washington policy analyst at Raymond James & Associates, said in an interview. "It's possible, but I think it's politically untenable to have someone [stay in charge] with the findings of the report."
In the meantime, certain Democrats might move to urge Gruenberg to leave early, especially after Senate Banking, Housing and Urban Affairs Committee Chairman Sherrod Brown (D-Ohio) called for a new FDIC head.
"Moderate Democrats, especially those who aren't fans of the Basel endgame proposal, might also call on Gruenberg to step down now," Ian Katz, managing director at Capital Alpha Partners LLC, wrote in a note on May 20. "We don't pretend to know how long this will take to play out, but we would be surprised if Gruenberg can hold on until a successor is confirmed."
